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CS507 - Information Systems - Lecture Handout 16

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Phases of decision-making

There are five phases of the decision making process, the details of these phases have already been discussed in detail. These five phases will be elaborated in the form of an example for better understanding.

Phases of decision-making process are:

  • Intelligence – searching for conditions in the environment that call for decisions
  • Design – inventing, developing, and analyzing possible courses of action
  • Choice – selecting a course of action from those available
  • Implementation – implementing the selected course of action
  • Monitoring – checking the consequences of the decision made after implementation

Phases Example

Assume that a multinational company is considering opening a branch in Pakistan. Identify typical activities that would be performed in each phase (intelligence, design, choice, and implementation) of the decision to open or not to open a branch.

The Intelligence Phase

Scan the environment to identify problem situations or opportunities. Conditions that call for decisions are identified. Typical Activities include:

  • Country Risk based on following
    • Country credit rating
    • Transparency
    • Corruption
  • Facilities for one window operation (levels of bureaucracy)
    • SRO Culture
    • Govt. Policy
    • Law & Order
    • Exchange rates

For instance, international banks while entering into country make assessment of exposure and thus limit the maximum number of transactions the bank can undertake.

  1. What are the possible advantages, disadvantages, and risks?
  2. How much resources will be diverted from other activities?
  3. When should we start? And so forth.

The Design Phase

Possible courses of actions are invented, developed, and analyzed.

Typical Activities include:

  • Select criteria for assessing the alternatives (e.g., ROI, market share, etc.)
  • Create alternatives: invest now, invest later, do not invest
  • Analyze levels and timing of investment
  • Information flow for decision making
  • Prepare a feasibility study
  • How will the choice be made, by whom, and when?

The Choice Phase

A course of action is selected out of the available alternatives as devised in the design phase. Typical Activities include:

  • Get information
  • Final evaluation
  • Sensitivity analysis

The Implementation Phase

Implement the selected course of action. Typical Activities include:

  • Follow the implementation plan
  • Deal with resistance to change and necessary approvals and authorizations
  • Conduct training
  • Transfer resources

Rational Individual Models of Decision Making

Since individuals in total make up organization, hence it is reasonable to build information systems which facilitate the individual decision making. These are:

  • Rational Man (Comprehensive Model)
  • Bounded rationality
  • Muddling (Successive Comparison)
    • Psychological (Cognitive Types)

The basic assumption of all these models is the human beings are rational.

  • An individual has goals and objectives.
    • Alternative course of actions can be followed to achieve these goals.
    • Every alternative has a utility and payoffs which helps him to rank the alternatives.
  • There is an impact or consequence for every alternative being followed.

Rational Man Model

  • In a rigorous rational model, it is presumed that the individual is rational enough to accurately rank all the alternatives.
  • However, in the real world of humans, specifying all of the alternatives and consequences is impossible.
  • Information systems based on this model need to be based on availability of perfect and complete information on all alternatives so as to ensure certainty.
  • Real life situations need to be given room for chances which this model does not provide for.

Rational Man Model – Example

  1. In a pharmaceutical drug company, the preparation and testing of life saving drug is a critical phase, and choice of a perfect alternative is inevitable. Hence the information system devised to support it should be such that it can record and monitor even the slightest variations.
  2. In an ammunitions factory, the testing and quality control of various bullet, shells, missiles, bombs, etc is a sensitive issue. Since chances of error are quite high, the system from selecting and discarding should be with high sensitivity level.

Bounded Rationality

Keeping in view the high level of perfection and completeness required by the rigorous rational model, certain adjustments were made in this model. The purpose was to seek a sufficing instead of an optimizing outcome. Bounded rationality focuses on the fact that Individuals prefer to avoid new uncertain alternatives and rely on tried and-true rules (SOP’s). According to this model, individuals bound the rational behavior of choosing the best alternative by choosing a sufficing alternative. That is why it is termed as bounded rationality. Information systems based on this model are close to reality in terms of considering alternatives which are most commonly available. Quick decision making can be encouraged through this model.

Bounded Rationality -- Example

Cost benefit analysis is a must in choosing an alternative in a decision making model. Where an alternative being given is difficult to implement in terms of costs involved, the management might chose a less than perfect alternative hence SUFFICING INSTEAD OF OPTIMISING.

“Muddling Through”

This model is closer to reality as compared to the above two goals. This model has introduced the concept of incremental decision making, which decisions are taken by choosing policies most likely the previous ones. For this purpose the information systems need to be intelligent and include knowledge based systems to help accumulate and use knowledge.

Psychological (Cognitive Types)

This refers to the underlying personality dispositions toward the treatment of information, the selection of alternatives and evaluation of consequences. • The model proposes that human beings are value maximizes and in that sense are rational. But humans differ in how they maximize the value.

Psychological (Cognitive Types)

There are two types of cognitive type of decision making.

  • Systematic – problem is approached in a structured way in terms of some formal method.
  • Intuitive – problem is approached with multiple methods using trial and error to find a solution.

Of both the above methods, one should be selected based on the problem at hand. Information systems should follow a systematic and intuitive pattern based on the problems or cases it is supposed to deal with. MIS and DSS can be seen as having a systematic approach towards problem solution. The concept of heuristics, fuzzy logic, etc, is devised to follow the intuitive patterns.

Organizational Models in Decision Making

Organizations are thought to have singular goals controlled by senior level decision makers who are completely informed. How organization makes decisions as a whole, following are certain models.

  • Bureaucratic
  • Political
  • Garbage Can

Bureaucratic model

Whatever organizations decide is a result of Standard Operating Procedures, evolved over time. In general organizations do not chose or decide in a rational sense, instead they chose a specific set of SOP’s. Radical policy changing is discouraged at all costs.

Empire Building

Empire building is a business term that refers to a common problem in larger organizations, in which managers attempt to gather more administrative and financial power. Power can only be shared in an organization with key employees in terms of their responsibilities & functions. Such employees are the key players in the decision making process. Hence decisions taken in an organization are a result of collective efforts of the leaders involved. This model is also termed as Political Model.

Garbage Can Model

This model states that organizations are not rational. Decisions made are largely on accidental basis. Hence wrong solutions may be applied to wrong problems in an organization and critical mistakes may occur. Information systems should be designed to support and assist in relevant decision making, instead of making unrelated and wrong decisions.

System Design & Decision Making

The purpose of elaborating the concept of decision making in the context of IS was to make you realize the importance of the fact that, Information system must support the managers for timely and effective decision making. While designing the information system, output, in terms of suitable reports is essential to analyze, highlight and bring to attention situations that may require decision making. The top manager looks for value addition to his/her knowledge of business operation.